It revealed that the Kremlin is planning to significantly increase the amount of military cargo headed for Belarus.

This may be a sign that Moscow is preparing to redeploy a large number of Russian troops to Belarus in 2017.

A piece by Belarus Digest predicted that the Kremlin is trying to transform Belarus into a flash point for menacing NATO and Ukraine by deploying its military capabilities on Belarusian territory.

Unfortunately, this prediction is corroborated by the aforementioned logistic data, as well as the fruitlessness of the recent meeting between Alexander Lukashenko and Vladimir Putin in Moscow.

The negotiation agenda: two different angles

On 22 – 23 October 2016 Alexander Lukashenko paid a working visit to his Russian counterpart Vladimir Putin to discuss bilateral economic problems. The lack of official comments on the results of the negotiations in Moscow raises some doubts about its real agenda. Moreover, the current state of affairs demonstrates that the Kremlin is unwilling to compromise and will continue to put pressure on Minsk.

However, Alexander Surikov, the Russian ambassador to Belarus, announced shortly before the meeting that the two presidents would not be discussing economic problems. According to him, Vladimir Putin and Alexander Lukashenko would focus on political issues in the changing international context. He did not specify which 'changes' were implied.

Nevertheless, it seems that Putin had already set the political agenda for negotiations with Lukashenko during the Asia-Pacific Economic Cooperation Summit in Peru on 21 November 2016, one day before the meeting in Moscow. He explained why Russia is so alarmed by NATO’s expansion and stressed that the 'situation is heating up'.

Without doubt, Putin did discuss the current security situation in the region with his Belarusian counterpart. According to Kremlin strategists, upcoming deployments of four NATO battalions in Poland and the Baltic states will undermine the strategic stability of the region.

Putin believes that Belarus must participate in Russia’s military response to NATO’s activities on its Eastern flankRead more

For this reason, Putin believes that Belarus must participate in Russia’s military response to NATO’s activities on its Eastern flank. Part of this response includes the large scale 'Zapad / West 2017' military drills taking place on the territory of Belarus and Kaliningrad next year.

Military drills or occupation?

However, the newly revealed logistical data of Russian military cargo to Belarus illustrate the Kremlin’s far-reaching strategic designs. It seems that Moscow is planning to redeploy a large number of Russian troops on the territory of Belarus for purposes other than military drills.

According to these data, the Russian Ministry of Defence plans to send 4,162 railway carriages to Belarus next year. This would be 33 times more traffic than in 2015, and 83 times more traffic than this year. Some more argue that this increase in flow is connected with the 'Zapad/ West' joint strategic military exercises taking place next September.

However, comparing next year's logistical data with the number of railway carriages coming from Russia in 2013, during the previous 'Zapad' military drills, paints a rather different picture.

The Russian Ministry of Defence sent only 200 railway carriages to Belarus that year. Moreover, almost half of the motorised brigade of the Russian Armed Forces (comprising 2,500 troops) took part in the joint military exercises on the territory of Belarus.

In contrast, next year the Russian Ministry of Defence is planning to send 20 times more railway carriages to Belarus than during previous 'Zapad' drills in 2013. What's more, the Kremlin’s strategists are not required to publish certain military logistic data in open sources. This is a usual practise. Therefore, to get a more realistic idea of the scale of Russian troops’ redeployment to Belarus, the number of railway carriages should be multiplied at least by a factor of 1.5.

This logistical military data indirectly confirms that Russia is going to redeploy a number of troops to Belarus almost equal to the 1st Guards Tank Army of the Western Military District, and not simply participate in regular military drills.

Obviously, the Kremlin does not need this many troops for training purposes. A more likely scenario is that Russia plans to transform Belarus into an outpost for military confrontation with NATO. Specifically, Russia may use Belarusian territory in order to generate security threats and challenges to the Baltic states.

the Kremlin must first set up a strategic military presence on the territory of BelarusRead more

In order to accomplish this, the Kremlin must first set up a strategic military presence on the territory of Belarus. Obviously, if this many Russian troops arrive in Belarus, it will be difficult to send them home later. Without doubt, this is detrimental to the sovereignty and independence of the Belarusian state.

Implications of the meeting in Moscow

Notably, this Russian military logistical data appeared in open sources one week prior to Lukashenka's visit to Moscow earlier this month, despite the fact that Belarusian military officials had not yet ironed out the details of next year's 'Zapad' drills with their Russian counterparts.

In this regard, the publication of these data can be seen as a tool to put psychological pressure on Minsk in order to bring Belarus into line with the Kremlin.

Simultaneously, the Russian media launched an information campaign dedicated to Belarus immediately following Lukashenka's visit to Moscow. Even certain federal-level Russian TV channels, such as 'Channel One Russia' and 'Zvezda', reported on the topic of Belarus

Some journalists' stories drew parallels with the situation in Ukraine. According to them, the same fate of destabilisation awaits Belarus, as Western intelligence agencies are preparing a colour revolution to overthrow Alexander Lukashenko.

Other stories focused on the growth of nationalist sentiment and 'Russophobia' in Belarusian society, as well as an outburst of right-wing oppositional political movements and parties. 'Zvezda', the TV channel of the Russian Ministry of Defence, warned explicitly that Alexander Lukashenko could be overthrown by Ukrainian provocateurs and so on.

Belarus Digest has written articles outlining a hypothetical coup scenario in Belarus launched by the Kremlin. According to this sequence of events, Russian-backed sabotage groups could operate as Belarusian nationalists or 'Ukrainian provocateurs'. In another scenario, based on the failed tactics of plotters in Montenegro, Russian agents could also pose as local security forces.

It seems that the Kremlin is preparing Russian public opinion for a serious crisis in Belarusian-Russian relations. The fruitlessness of Alexander Lukashenko’s visit to Moscow also signals that Belarus is refusing to become a Russian military outpost in the event of a confrontation between NATO and the West.

In the future, an intensification of tension and an increase in coercive measures by the Kremlin – should Belarus continue to defend its national sovereignty and independence – is possible. This could even entail a coup attempt and destabilisation as an excuse for the Russian military to intervene in Belarus and instal a fully pro-Kremlin regime in Minsk.

Without a doubt, such a pro-Kremlin regime would acquiesce to however many Russian troops the Kremlin desires on Belarusian territory.

Arseni Sivitski

Arseni is the Director of the Centre for Strategic and Foreign Policy Studies based in Minsk; he is also a military officer in reserve for the Belarusian Armed Forces.

On 26 November Belarusian Deputy Prime Minister Vladimir Semashko announced that the recession in the Belarusian manufacturing sector has ended.

However, Belarusian banks strongly disagree with this statement. They yearn for more financially stable corporate borrowers, especially in the industrial sector.

Meantime, oil refining – currently the mainstay of Belarusian manufacturing – is under threat as Russia reduces the volume of oil it supplies to Belarus for processing. This is likely to impede Belarus's recovery from the economic recession even further.

Industrial production: an optimistic view

On 26 November, Vladimir Semashko announced that all indicators point to the fact that the manufacturing crisis has stopped – the growth rate reported by the Ministry of Industry has already reached 3 per cent; it is predicted to rise to more than 11 per cent next year.

However, such an extraordinarily positive appraisal of economic performance in the industrial sector seems slightly premature. There are several reasons to think so. First of all, in 2015 the manufacturing sector receivedfinancial assistance from the state (in the form of of foreign currency bonds) totaling more than $500m. This sum has yet to be repaid.

Secondly, due to a lack of free financial resources, the repayment of these debts will fall on the shoulders of ordinary Belarusians. The average wage in Belarus remains at historically low levels – despite several months of growth it has fallen once again and now constitutes only $379.

Finally, even though growth dynamics have reversed when it comes to several industrial product items, the overall picture in manufacturing remains disappointing (see Figure 1). In October industrial production increased by 3.6 per cent compared with September – this was slightly better than expected but hardly surprising.

The banking system: endangered risk takers

Meanwhile, the demand for loans from Belarusian enterprises remains low due to the high cost of borrowing (18 per cent on average). If the credit market were in a different condition, banks could channel unused funds into the economy in order to break the recession.

Theoretically, banks could increase their loan portfolio – they do have the money. However, the situation five years ago, when banks' credit portfolios grew by dozens of percentage points a year, seems unlikely to repeat itself in the coming years.

Belarusian Development Bank analysis shows that the economic downturn and deteriorating financial conditions of enterprises has led to changes in the internal instructions of the Belarusian banks prohibiting to increase loan portfolio if they do not first improve their quality. Belarusian banks do not trust corporate borrowers to repay their debts in the future, as most potential borrowers are classified as 'low-quality'.

For example, in January-September 2016 the number of problem loans in the banking sector increased from 6.8 per cent of the total at the beginning of the year to 14.3 per cent on 1 October. This rise in banks' problem loans coincides with the deteriorating financial conditions of enterprises.

The current economic downturn has several repercussions. First, it increases the risk for those banks who wish to raise their loan portfolio. Second, it discourages others from further risk taking. As a result, according to the National Bank, the volume of corporate loans in national and foreign currency decreased by 3.9 per cent and by 5.2 per cent in January-September respectively.

Oil negotiations: waiting for refunds

Belarusian authorities are trying to find new ways to increase the financial base of budget profits. On 25 November 2016, Igor Demin, an official representative of the Russian company Transneft, confirmed that two Belarusian oil transport companies had stated their intention to increase the cost of transit for Russian oil from 1 January 2017 by 20.5 per cent.

In October, Belarusian authorities had already threatened Moscow with a sharp increase (50 per cent) of the oil transportation tariff. Transneft representative Igor Demin responded that such changes would require a corresponding agreement with Transneft and the Russian government.

At the moment, a 2010 intergovernmental agreement regulates the calculation of the growth rate for transit tariffs. It takes into account the preliminary predetermined volume of oil transit, which remains unknown until February 2017. According to these arrangements, Belarus has the right to increase the transit tariff unilaterally only to adjust for average annual inflation.

However, the main reason behind the growth of the transit tariff remains the volume of oil reaching Belarusian oil refineries. From 2016 until 2024, Russia agreed to supply 24m tonnes of oil annually. But starting in the second half of the year, Moscow reduced the oil stream first to 3.5m tonnes (approximately 40 per cent) per quarter, and starting in October to only 3m tonnes (see Figure 2).

The main reason behind these harsh measures is the Belarusian gas debt, which has already reached $281m. In turn, authorities in Minsk are demanding that gas prices be reduced and set according to their own calculations ($73 instead of $132). Belarus has promised to close this gap by 20 October in exchange for the resumption of oil supplies, but the invoice nevertheless remains unpaid.

The decrease in the oil supply and the corresponding decline in petroleum product production have led to an additional 0.3 per cent GDP drop. Officials in Minsk urgently need a new bargaining chip for their oil manoeuvres to succeed. They are now relying on alternative oil streams from Azerbaijan.

Thus, the authorities have decided to raise the stakes in the energy dispute once again. Although such a controversial move may possibly help resolve the issue of discounted gas, it will surely not help attract new foreign investors, especially into the manufacturing sector, suffering as it is from a lack of cheap capital.

Aleh Mazol, Belarusian Economic Research and Outreach Center (BEROC)

This article is a part of a joint project between Belarus Digest and Belarusian Economic Research and Outreach Center (BEROC)